Facts
Decision


On 9 February 2023, the High Court of Bombay refused to interfere in a challenge to an arbitral award under section 34(1) of the Arbitration and Conciliation Act 1996, wherein the arbitrator had consolidated nine separate disputes between the same parties.(2)

Facts

The petitioner, a textile company, entered into nine contracts with the respondent, a government undertaking, for the purchase of cotton bales. The respondent alleged that the petitioner had purchased only 1,300 cotton bales in lieu of 26,449 cotton bales, thereby breaching the terms of the nine contracts. Each of the contracts contained an identical arbitration clause. Due to this dispute, the respondent invoked arbitration.

The respondent (the original claimant) filed a consolidated statement of claim pertaining to all contracts as the terms, the format and the mutual obligations of the contracts were identical. The petitioner (the original respondent) also filed a consolidated statement of defence and counterclaim but raised an objection regarding the consolidation of claims by the respondent. Consequently, the arbitrator framed a specific issue concerning this case.

After recording evidence and hearing arguments, the arbitrator(3) favoured the respondent and directed the petitioner to pay a sum of 255,988,023 rupees plus interest. The petitioner's counterclaim was dismissed. Aggrieved, the petitioner assailed the impugned award by filing a petition under section 34 of the Act.

Contentions of parties
The petitioner contended that the arbitrator had no power to consolidate disputes arising from the nine contracts. In the absence of this power, particularly when the petitioner had not consented to the consolidation, the impugned award:

  • was vitiated;
  • contradicted the fundamental policy of Indian law; and
  • was liable to be set aside.

Further, the petitioner argued that the causes of action arising from the nine contracts were distinct. Hence, the claims pertaining to each dispute ought to have been separate and distinct. The petitioner claimed to be a victim of prejudice since the arbitrator had not considered the separate alleged acts of breach of contracts while favouring the respondent.

Conversely, the respondent argued that its statement of claim contained specific details of each claim from each contract and that the petitioner had been aware of the context of the claims. Despite this, the petitioner responded with a consolidated statement of defence. The way in which the arbitrator appreciated the evidence demonstrated that each transaction was considered separately and the respondent's claims were determined on that basis.

Lastly, the respondent submitted that the petitioner was asking the court, while exercising jurisdiction under section 34 of the Act, to reappreciate the evidence and to judge the merits of the award, which is prohibited under the law laid down by the Supreme Court,(4) particularly after the amendment of section 34 of the Act.

Decision

The High Court noted that the principal question for consideration was whether the impugned award passed by the arbitrator was liable to be set aside on the grounds that:

  • disputes arising from the nine contracts were consolidated; and
  • a single statement of claim filed on behalf of the respondent was entertained and allowed in favour of the respondent.

First, the High Court examined the scope and extent of jurisdiction available under section 34 of the Act. On jurisdiction, the High Court concurred with the Supreme Court(5) and observed that arbitral awards cannot be interfered with as the court does not preside in appeal. The court is prohibited from reappreciating the evidence and going into the merits of the arbitral award. The High Court reiterated that the arbitrator is the ultimate master of the quantity and quality of evidence while drawing up the arbitral award.

With this in mind, the High Court proceeded to evaluate the petition. The High Court, considering the judgment of Duro Felguera, SA v Gangavaram Port Limited(6) relied on by the petitioner, observed that the case had been decided against the backdrop of the specific facts ,which concerned five separate contracts. These five contracts had existed independently, and one of them had been with a foreign company requiring international commercial arbitration. Hence, it was held that there could not be a single arbitral tribunal. The High Court noted that in the present case, the facts were distinguishable.

The High Court also considered the decision of the Supreme Court in the case of P R Shah Shares and Stock Brokers Private Limited v B H H Securities Private Limited,(7) wherein the Supreme Court had decided on the question of carrying out a single arbitration in a way that would not only be convenient, but necessary for avoiding multiplicity of proceedings and the possibility of conflicting decisions.

Furthermore, the High Court, while weighing the petitioner's contention about being a victim of prejudice, found that there was no compelling evidence of any prejudice caused by the manner in which the arbitral proceeding had been undertaken. The emphasis was on the fact that, without the petitioner's consent, the arbitrator could not have conducted the consolidated arbitral proceeding.The High Court was not impressed with this contention, primarily because, in this case, the respondent had set out distinct claims arising from all nine contracts in the statement of claim and even led specific evidence under each claim. The Court found that the petitioner had had ample opportunity to cross-examine the witnesses and offer its own evidence. The petitioner had also chosen to file a consolidated counterclaim, thereby indicating that it was in the interest of justice that the arbitrator chose to proceed in this manner. Hence, the High Court rejected the petitioner's contention.

The High Court held that since the contracts in question had been executed between the same parties and had identical arbitration clauses – the only difference being the actual figures of sale and purchase – the nature of the dispute arising from the contracts was identical. Therefore, the High Court held that when specific claims pertaining to each of the contracts were placed distinctly in the statement of claim – as the other party also filed a consolidated counter-claim – it could not be said that the arbitrator had committed a jurisdictional error in proceeding with the consolidated arbitration.

Therefore, considering the nature and scope of jurisdiction available to a court, and the previous findings of the Supreme Court,(8) the High Court held that there were insufficient grounds for interfering with the impugned award, either because the award was opposed to Indian public policy or because it was patently illegal.

For further information on this topic please contact Aniketh Nair or Vishesh Kulkarni at Clasis Law by telephone (+91 22 4910 0000) or email ([email protected] or [email protected]). The Clasis Law website can be accessed at www.clasislaw.com.

Endnotes

(1) Application for setting aside arbitral award.

(2) BST Textile Mills Pvt Ltd v The Cotton Corporation of India Ltd, Interim Application (L) No. 7323 of 2021 in Commercial Arbitration Petition No. 563 of 2017, Bombay High Court.

(3) See impugned award dated 24 July 2017.

(4) Ssangyong Engineering and Construction Co Ltd v National Highways Authority of India (NHAI), (2019) 15 SCC 131.

(5) Ibid.

(6) (2017) 9 SCC 729.

(7) (2012) 1 SCC 594.

(8) Id at 3.